When buying a house, there are a series of steps that you must complete before you close the purchase. They range from having the house appraised to verifying that your debt to income ratio remains strong enough for you to be able to pay your mortgage. If you have successfully completed all of these steps, you will get what amounts to a stamp of approval -- cleared to close.
Getting Ahead With A Mortgage Pre-Approval
One of the first steps you should take in the homebuying process is getting pre-approved. This means you have secured a loan from a mortgage provider. Sellers with more than one offer may see you as the better option, even if your offer is lower than others, because you have lined up your financing ahead of time. Not only does this bode well if you are eyeing a house that has drawn interest from other buyers, it also takes care of many of the issues that you will have to settle before the closing.
Checking the Home's in Good Condition
Every homebuyer should have the property examined by a professional building inspector to make sure it fully complies with local building codes. If you are taking out a loan through the Department of Housing and Urban Development, there are very specific inspection items that must be addressed before you can close. For example, HUD requires that every part of the house is complete, including some minor items such as door handles. Often, when a home is being built, many details are completed just days before the scheduled closing date. For this reason, homebuyers should make sure the details are tended to well before the closing date so that they do not interfere with the clearance to close provisions.
Cleaning Up Your Credit
Many homeowners have to pay off delinquent or charged-off accounts to qualify for a mortgage. While you may have been pre-approved for a loan prior to closing, the mortgage company will run another credit check on you before it clears you to close. This can be done up until the day of your scheduled closing. The lender checks to see if you have become delinquent on any bills since the first credit check. If you have incurred additional debt that could affect your debt-to-income ratio or your ability to pay your mortgage, the lender may not clear you to close. Best advice is to avoid accepting any credit offers or taking out additional loans until after you close.
Rubber Stamping the Documents
Before the mortgage is cleared to close, the mortgage company verifies the documentation you have submitted. A processor checks that your paperwork is complete and validates the information you provide, such as your employment information. He also verifies your living situation with your current mortgage holder or landlord. Next, a mortgage underwriter makes sure your application and supporting documents, such as the appraisal and title report, conform to all the guidelines required by the lender. The underwriter has the ultimate power in determining the final approval of your loan. His approval means you are cleared to close.
Valerie Fox is a business reporter and editor specializing in consumer affairs and debt management. She has been a writer since 1994, also covering politics, housing and the stock and bond markets. Fox has written for Cox, Gannett and Knight-Ridder newspapers. She holds a Bachelor of Science in economics from the University of Florida.